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Question about inventory-based businesses and profits

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Xeon

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Assume we've the following scenario:

You invest US$5,000 upfront to manufacture 500 product units and each product costs US$10 including shipping and everything.

You mark up each product to US$20 and sell it at that.

Now, assume in a perfect scenario, you sell all 500 units, so total revenue is 500 units * US$20 = US$10,000.
So, the profit is US$10,000 - US$5,000 = US$5,000

So, now you need to restock the products right? So you re-invest the US$5,000 profits back into buying 500 product units again. And the cycle continues.

What I don't understand is, how does one even make money or pay yourself any salary this way? It's an infinite loop and you're basically earning ZERO dollars throughout the process because all profits need to go back to purchase new stock.

Plus, if you look closely at the example above, it's actually a LOSS because you haven't factored in the time you spent, as well as any faulty returns + customer acquisition costs and ads etc.

Heck, there's not even money left to manufacture new types of products!
How do folks make inventory-based businesses profitable based on above example?
 

hungryhippocampi

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Assume we've the following scenario:

You invest US$5,000 upfront to manufacture 500 product units and each product costs US$10 including shipping and everything.

You mark up each product to US$20 and sell it at that.

Now, assume in a perfect scenario, you sell all 500 units, so total revenue is 500 units * US$20 = US$10,000.
So, the profit is US$10,000 - US$5,000 = US$5,000

So, now you need to restock the products right? So you re-invest the US$5,000 profits back into buying 500 product units again. And the cycle continues.

What I don't understand is, how does one even make money or pay yourself any salary this way? It's an infinite loop and you're basically earning ZERO dollars throughout the process because all profits need to go back to purchase new stock.

Plus, if you look closely at the example above, it's actually a LOSS because you haven't factored in the time you spent, as well as any faulty returns + customer acquisition costs and ads etc.

Heck, there's not even money left to manufacture new types of products!
How do folks make inventory-based businesses profitable based on above example?

I don't think you took into account that you earned your original $5k back. At that point you would have $10k to go buy 1000 products or bank the original $5k and play with the house's money and buy another 500...assuming this is hypothetical and you spend zero dollars on marketing, etc.
 

cmor16

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It's an infinite loop and you're basically earning ZERO dollars throughout the process because all profits need to go back to purchase new stock.

Not true.

You have $10K in sales and $5K in profit each time you do this.
The 1st time through the process, you recoup your original investment plus have $5K to buy more inventory.
Now you have $0 invested and $5K worth of inventory.
Once you sell that, you have $10K. $5K of which you reinvest and $5K to pay yourself.
Each time you repeat, you'll have $5K to pay yourself.
 

scott.legendre

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you sold 500 product at $20 each, that's 10k you put into the bank

you then buy 500 more products at $10 each, that's 5k taken out

and now you have 5k in the bank.

you sold the new order of 500 more product at $20 each. that's 10k more you put into the bank

add that to the 5k you had in the bank and now you have 15k total.

buy 500 more product at $10 each for 5k

and you have 10k still sitting in the bank after that.
 

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